How to Handle Failed Payments and Involuntary Churn in Your Membership Site

The membership model is more popular than ever before. According to research published in 2020 by Paysafe , 86% of Americans have at least one subscription, with 69% subscribed to multiple memberships.

And 36% expect to sign up for even more subscriptions this year.

If you run a membership site, these stats should have you feeling optimistic for the future. But there is a major headache that affects all membership models – one that can badly impact your growth if you don’t have a solid strategy in place to manage it.

What is this issue that is plaguing membership sites? Failed payments.

Losing members is never enjoyable, but it is even more frustrating when it happens because of a failed payment.

As far as you know, your member had no intention of lapsing and might continue to be a loyal customer for many years. But now the payment has failed, and you need to sort it out as soon as possible or they might be gone for good.

This is known as involuntary churn – when members lapse because of payment issues rather than because they deliberately cancelled their subscription.

On average, recurring card payments have around a 5% failure rate but it could be higher for some businesses. That may not sound like a huge number, but it is 5% of your membership that you didn’t intend to lose. And you probably worked hard to recruit them in the first place.

Although you can’t eliminate failed payments altogether, there are some things you can do to manage the process and limit the impact it has on your membership churn rates.

Even if you have yet to face a failed payment, putting a strategy in place will mean you can handle it smoothly when it does happen.

Reasons credit card payments fail

There are a few different reasons that a recurring credit card payment fails.

With first payments, it is most usually because the potential member has entered their card details or their billing address incorrectly. Fortunately, these payments are generally caught straight away, while the person is still on your site.

With any luck, the customer will try again, and the issue will hopefully be resolved quickly. That’s why it is a good idea to carry out the card authentication process as part of signup even if you offer a free trial.

Irritatingly though, failed subscription payments can happen even with established members whose payments have previously gone through successfully.

And these are more of an issue because the member is no longer actively monitoring the payment.

For existing members, some of the most common reasons that payments fail involuntarily include:

1) The card details have expired

Very few people remember to update their payment details on all their membership sites when they get a new card. Usually, their first prompt is when the subscription payment has failed.

Most payment gateways have an option to set up reminder emails for when cards are close to expiring. You can also add a reminder to check their payment details are correct in your renewal emails.

Even then, you are bound to get people who forget to update their card details in time for the payment to go through successfully. And cards that are marked as lost or stolen will also result in failed payments.

2) The bank suspects fraudulent activity

Banks are increasingly hot on suspected fraudulent activity and are quick to decline payments they view as suspicious. Sometimes they’ll get in touch with the customer to let them know, but this seems to vary from bank to bank.

You are more likely to see banks declining subscription payments if the transaction is an unusual activity for the member, or if they are based in a different country from you.

Other than making sure you authenticate card details as you collect them – which payment gateways should handle on your behalf – and keeping billing addresses up to date, there’s not a lot you can do to prevent the member’s bank from declining the payment.

3) The customer has insufficient funds

The third common reason for failed subscription payments is that the member doesn’t have the funds available in their account to cover the payment or has exceeded the spending limit on their card.

Sending reminder emails well in advance of the payment being taken can help to jog people into remembering to check their balance.

But many people don’t keep an especially close eye on their bank balances. And unexpected expenditure might have put them over their limit.

As you can tell from this, even with your best efforts, there are likely to be subscription payments that fail from time to time. Finding out exactly why the payment has failed can be tricky – some payment processors will give you more information than others.

If you can find out, do – this will help you to monitor and address the most common reasons for failed payments from your membership. It also means you can answer questions from your members more easily if they get in touch about the failed payment.

What to Do When a Payment Fails 

As we’ve said, keeping an eye out for any trends in why failed payments are occurring can help you formulate your strategy to address them.

If your membership is relatively small, you might be able to look at every failed subscription in detail and contact people individually – this personal service will hopefully make them more likely to take steps to tackle the failed payment.

In most cases though, you are going to want to automate as much of the process for handling failed payments as you can. In the best-case scenario, the issue will get resolved without you needing to spend your precious time figuring it out.

Most payment gateways have automatic processes in place to help you manage failed subscription payments. These vary from processor to processor.

And you can also configure automated emails in either your payment processor or your membership plugin, to make sure you keep your members informed about failed payments and get them to resolve the issue swiftly.

Step 1: Retry the payment

Your first option is usually going to be trying to take the payment again.

The gateways we integrate with, which include some of the most popular options, will automatically retry failed payments as follows:

  • Stripe: You can choose to set up your Stripe account with Smart Retries, which uses Stripe’s machine learning to pick the best time to retry the payment. This might be up to a month after the original payment failed. If that is too long, you can configure your own retry rules and attempt the payment a maximum of three times.
  • Paypal: When a recurring Paypal payment fails, it is automatically attempted again after 3 days, then again after 5 days. After that, the recurring payment is canceled. Paypal won’t retry failed payments if another recurring transaction is scheduled within 14 days of the original.
  • Braintree:If a payment is declined or fails to go through, Braintree will mark the subscription as past due and add the amount to the member’s subscription balance. Failed payments are reattempted at the beginning of each payment cycle, or you can configure your own rules to have them collected mid-cycle. You can also retry payments manually. Braintree continues to add failed payments to the member’s balance until the end of the membership period unless you take action.
  • can switch on automatic retries for your recurring payments in, but the process is a little more manual than with the other payment gateways. Instead of your member’s subscription being canceled, it will be suspended until you update the subscription payment details. At this point, will retry the payment.

Step 2: Inform the member

With luck, the failed payment will process correctly on the second or third attempt and the member can continue with their subscription. But you’ll still want to contact them after the first failed payment, so they can take the appropriate action to make sure the second attempt is successful.

Set up automated emails to let members know that a payment has failed and that you will be retrying it. This can prompt them to update their details or make sure the money is available to cover the payment.

Give them a checklist of options, including checking their balance and their card expiry date, to prompt them to take appropriate action.

Step 3: If the retries fail

If the payment continues to fail, you’ll want to let members know and tell them how to pay their balance. It might be that they’ve still not updated their card details, or they may not yet have the funds to cover the payment.

When payments fail because they were declined by the bank, they may or may not go through when you reattempt them, depending on the reason the bank declined the payment.

Braintree says that it won’t retry payments with some decline codes, because it is clear that they are unlikely to be successful.

Often, when a payment fails because it is declined, your only option is to ask your member to speak with their bank directly.

Step 4: Make it as easy as possible

Unfortunately, despite your best efforts and most persuasive reminder emails, you’ll likely still lose some members after a failed payment, especially when resolving the issue requires action on their part. People have to be motivated to go to the effort of updating their details – and even more motivated if tackling the failed subscription will require them to spend valuable time on the phone to their bank.

The more they value your membership, the more likely they are to go to that extra effort to continue to subscribe.

And if you can make it easier for them, you are more likely to retain them as members. That’s why we encourage Restrict Content Pro users to embed the [rcp_update_card] shortcode on their sites – it lets members update their card details directly through your site.

So, if they’ve missed a payment due to an expired card, they can easily fix the issue themselves. Hopefully, before the payment is reattempted.

How can you prevent failed payments from happening?

The beauty of recurring payments is that members need to take action to cancel, rather than to renew. As anyone who manages a membership scheme knows, that can do wonders for your retention rate and for reducing churn.

Unfortunately, when a subscription payment fails to go through, you lose the benefit of the recurring payment. And, worse, resolving it can often be more complicated than you’d like.

So, trying to prevent failed payments from happening in the first place is key to reducing your involuntary churn rate.

Depending on which payment gateway you have chosen, there is a magical solution that can help reduce failed payments from expired cards. Stripe and Braintree both offer an automatic card updating service that works for most Discovery, Mastercard, and Visa cards.

The payment gateways communicate directly with the issuing banks to update the card details. All without you or your members needing to do a thing.

With most cards expiring every three years, this is a service well worth considering when you are choosing a payment processor. Just a head up – there’s usually an extra charge for this service and not all banks participate, so some cards may still be missed.

Still, for larger membership sites, it is one to look into, especially if you struggle with a lot of failed payments due to expired cards.

Good communication with your members is another integral part of preventing failed payments. Make good use of renewal reminders by gently prompting your members to update their card details and make funds available to cover the payment.

Don’t forget to use template tags to personalize your emails – including directing members to the ‘update billing card’ page to catch any expired cards.

Wrapping Up

Failed payments are the bane of any membership site. But with a clear strategy in place, you can minimize the impact they have on your membership retention and reduce involuntary churn.

Make use of your payment gateway’s automatic retry features to make recovering failed card payments a quicker and easier process for you and your members.

And use your renewal reminder and payment failure emails strategically to reduce the number of subscriptions that fail, as well as getting members to quickly tackle any that do.

Most of all, continue to offer your members valuable benefits and excellent customer service, so they feel motivated to carry on their subscription even after a failed payment.

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